Some Thoughts on the Current Market Situation

1) Momentum draws investors. Long treasuries have run hard, and people like them now. My view is, if you want to short them, wait until they rise 0.1% more in yield, then short. There are a lot of weak longs to shake out.

5) Physics is the wrong analogy for economics. Ecology is the right analogy. Like ecologies, economies resist prediction and control. People adapt, inanimate objects don’t. So you might enjoy these articles from FT Alphaville and Bookstaber.

6) As I commented today on Twitter: “Get ready for the bookstore massacre http://bit.ly/cywtPT $BKS fiddles with its capital structure, while it gets outcompeted by $AMZN.” I mean it. The problems of Barnes & Noble are organic problems of competing against Amazon and losing. Who controls B&N is less important than what strategy they take from here. It is a lousy time for B&N to be consumed with a noneconomic issue, when they are getting killed. And forget BGP… they are dead too.

10) Hey, another blogger summit at the Treasury, and this one has three of the originals there (but not me). Comments from Marginal Revolution as well. One participant told me it wasn’t worth it to be there and the Treasury was not prepared to answer questions, but who can tell? I have an idea: let the Treasury webcast the meeting. I know from the first meeting that neither the Treasury nor the bloggers would have been dominant. At least it would be transparent; isn’t transparency what the Obama Administration is about?

11) Cramer has ten reasons that the market won’t blow up. Good. I am 80% invested. All I will say is that the rules are different when debts are being deflated. Things don’t behave the same way as when debts are growing.

12) TIPS are in an awkward spot here. Negative yields on the short end imply that buyers are looking for more inflation. I might think that in the long run, but would be reluctant to bet on that over the next five years.

David J. Merkel, CFA, FSA — From 2003-2007, I was a leading commentator at the excellent investment website RealMoney.com (http://www.RealMoney.com). Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and now I write for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I still contribute to RealMoney, but I have scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After one year of operation, I believe I have achieved that.

In 2008, I became the Chief Economist and Director of Research of Finacorp Securities. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm.

Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life.

I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.